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Monaco’s Compliance Frameworks on Track, Global Forum Reports
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Six years after the implementation of Automatic Exchange of Information (AEoI) in Monaco, the tiny principality has demonstrated its commitment to tax transparency by achieving a high level of compliance. The latest peer review conducted by the Global Forum reveals that Monaco’s legal framework is “in place” and the practical implementation is “on track.” This success is attributed to the efforts made since 2009 with the signing of bilateral exchange of information agreements.
Financial Institutions’ Role
Monaco’s financial institutions have also played a crucial role in this accomplishment. The Global Forum reports that many of the exchange partners who received files from Monaco achieved success rates equivalent or higher than their usual rates when matching the received information with their taxpayer databases. This shows the effectiveness of the efforts undertaken by Monegasque financial institutions to ensure accuracy and compliance in their reporting obligations.
Ongoing Vigilance
However, despite these positive results, the level of effort and vigilance must remain constant to maintain an optimal level of compliance. To enhance the effective implementation of the system, the Government has informed the Global Forum that on-site visits will be organized in the near future, going beyond document checks that have already been initiated. The implementation of penalties and sanctions is also being considered.
Impact of OECD Update
The OECD published an update to the Common Reporting Standard (CRS) and its commentaries in June, which will directly impact the due diligence and reporting procedures of Monegasque financial institutions. It is essential for companies to anticipate these modifications by assessing their impacts on existing processes and taking necessary efforts to ensure compliance.
FATCA Regime: Challenges and Opportunities
Regarding the Foreign Account Tax Compliance Act (FATCA) regime, Monaco remains one of the few states that has not signed an intergovernmental agreement (IGA) with the United States. This results in a direct interaction between Monegasque financial institutions and the US Internal Revenue Service (IRS), requiring legal advice for interpretation and implementation.
Impact on Financial Institutions
Monegasque entities part of a group with subsidiaries generally located in IGA countries may incur additional costs due to this regime. In 2014, Australia published a study exploring different options for implementing FATCA, revealing that if Australia chose not to sign an IGA with the US, the total annual compliance costs for the Australian financial sector would have been approximately two times higher compared to the costs resulting from signing an IGA.
Key Deadline
The key deadline for the FATCA regime is the obligation to renew the compliance certification every three years. This process needs to be properly anticipated by financial institutions as it requires a periodic review conducted by an internal or external auditor. Entities registered in 2014 must perform their next periodic certification by July 1, 2024.
Qualified Intermediary (QI) Regime: Evolution and Compliance
A first QI agreement came into effect in 2001 and remained unchanged until the arrival of FATCA in 2014. In 2017, an update was introduced, including requirements for internal compliance programs and periodic external audits. This year, a new version of the QI agreement came into effect, obliging Monegasque financial institutions to once again revise their compliance programs and periodic review processes to comply with these new requirements.
Conclusion
International tax regulations continue to evolve, significantly impacting Monegasque financial institutions. While Monaco maintains a strong stance on automatic exchange of information, it is crucial for financial institutions to remain vigilant to stay compliant and anticipate forthcoming changes. Similarly, the US FATCA and QI regimes demand ongoing attention and adaptation efforts to ensure optimal compliance and avoid legal, operational, and reputational risks.
By staying abreast of these developments and taking proactive steps, Monegasque financial institutions can control costs, maintain their compliance level, and position themselves as actors adhering to international tax standards.